The Psychology of Forex Trading: Managing Your Emotions

Filed under: Learn Forex Trading |

In my trade example today, I talked about a trade setup that I liked but did not take because of factors outside of the trade setup. We had been experiencing a bad run of results and I had stemmed the tide with a couple of good trades. I did not want to keep the bad run going, so I stepped aside and missed a good, profitable trade. Regardless of how good your system or methodology is, unless you have been using it for years with great success, when you experience a period of bad results, your confidence is inevitable knocked and this affects your trading decisions. This is no doubt what happened to me, and it is important to be aware of these psychological effects.

 

For the beginner trader, the psychology of trading is even more important because their emotions are still quite primal. They are like a child in a way, unable to control or understand their emotions. When a trade moves in their favor, they feel elated and unstoppablem, like they’re a trading god; but when a trade moves against them, they panic and go through various stages. Stage one is denial – the trade will turn around and come good in the end so they do not set any stop losses. When the trade moves against them further, they see this as an opportunity to add to their position at a better price – and so on and so forth until their bank is all but wiped out and they are in a state of depression.

 

It is important for any trader to learn to control their emotions. The less that you feel when you are trading, the better. Losing trades are a part of the process of trading, and should be viewed as the cost of doing business. So do not feel elated or depressed, just go about your business and make the best trading decisions possible. If you can learn to manage your emotions, you will be one step further to being a successful forex trader.

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